Web3 Will Fail Because You Can’t Solve Politics With Technology

The web sucks. A handful of companies control most of the hours we spend online, and those giants with their economies of scale seem to be able to crush all up-and-coming challengers. Web 2.0, the dream of social, user-generated content, turns out to be ruled by mustache-twirling app store landlords and shadowy social-media secret police.

It’s time to blow it all up, say the proponents of Web3, a decentralized system based on direct peer-to-peer interaction. Using a public blockchain ledger, micro-transactions, and “decentralized autonomous organizations” that work like auto-tallied democracies, Web3 will bring opportunity back to the little guy, its proponents say.

In that way, Web3 is extremely punk rock. Punk rock was an attempt to cast off the crust of the 1970s progressive/baroque rock movements and get back to what was considered the spare, pure rock music of the 1950s. Web3 tries to get back to the DIY techno-utopianism of the original “anyone can code” web, but with built-in payments and better indexing.

(The term is also tightly associated with cryptocurrency; I had four paragraphs here about how cryptocurrency is the endpoint of financializing everything, a purely synthetic instrument based on nothing whose only role is to increase in value based on hype, but that’s really a digression. Just read this instead.)

Part of Web3’s problem is that it’s being promoted by many of the most obnoxious narcissists in the world. It’s the project of Silicon Valley VCs, crypto obsessives who see everything as a nail for their blockchain hammer, and, well, probably “RazzleKhan.”

But the frustration it embodies is real. I’m online friends with one YouTuber whose videos keep getting demonetized, yet she feels she has no other potential outlet with audience. There has to be another way, right?

Why Web3 Will Fail

Web3 is an attempt to solve politics with technology.

In the 1980s graphic novel V for Vendetta, the nameless “V” liberates England from a fascist regime in the name of creating a joyous regime of anarchy. Anarchy, he points out, doesn’t mean no order: It means no leaders. “An it harm none, do what thou wilt,” as the witches say. That’s Web3—distributed, autonomous, ruled only by the cold logic of math and the warm friendship of voluntary, person-to-person agreements.

But anarchy never works at scale. Anarchies and communes above a certain size tend to collapse, turn into tyrannies, or turn into chaos. It’s notable that V ends at the collapse of the old regime, never showing the new world.

People are tribal, easily convinced by misinformation, and don’t particularly want to make decisions about everything in their lives. They want governments, just benign ones. The anarchy crowd is loud, but very small.

Web3 is, at its heart, a great cry against a consolidated landscape where a few “platform” companies (social media, plus Google and Amazon) control much of the content on the internet, often in a mysterious, unaccountable way.

But consolidation isn’t unique to the web; it’s a rot across American society. We have fewer airlines than we used to, fewer mobile-phone carriers, fewer ISPs, fewer pharmacy brands, fewer department stores. Forty years of economic consolidation has steadily gathered power in fewer and fewer hands.

This is a political problem, not a technological one. This has to do with globalized products, financial markets, and a regulatory environment that encourages big companies to just keep buying other big companies endlessly (as Spirit and Frontier Airlines agreed to do last week), while there are huge barriers to entry for smaller competitors. Blockchain can’t solve the problem of big pots of money wandering around and soaking up smaller ones. It might even make the process more efficient.

How Web3 Will Fail

I’m not an economist, but I understand the mobile and ISP markets. Solvable policy choices have led to all of our current cramped outcomes.

In mobile, other countries mandated that all carriers use compatible network systems or avoid using phone whitelists, or mandated against “tying,” where carriers control retail device sales. In ISPs, our own country mandated wholesale physical line sharing from 1996 to 2003, which greatly increased ISP options.

What all of these solutions have in common—what we need—is society at large getting together to put restraints on the biggest actors to ensure competition. Blockchain-based solutions don’t offer any of that. In fact, Web3 and NFTs’ use of the bloated, massive, expensive Ethereum blockchain just proves that for blockchain developers, bigger is also often assumed to be better. Consolidation and the associated oligarchic tyranny could just as easily happen in a blockchain world as it does now in ours.

How Consolidation Works in a Web3 Content World

Web3 starts with everyone running micro-transactions on their blogs. Then a few big blog indexes will show up and dominate discoverability. They will combine into one big blog index. That index will then charge rent to all of the independent operators it indexes. Finally, once it completely controls discoverability, it will demand exclusive contracts on its own terms. We have now just re-invented Google and the Apple App Store. Blockchain solves nothing here.

We are already starting to see the Web2 diseases crop up even in this early form of Web3. OpenSea, the dominant NFT platform, is doing that thing web companies do where it’s trying to grow fast enough to beat out all competitors. Its vision of Web3 is just having new and different tech giants. With no brakes on the process, the bigger will always eat the smaller.

The answer, in my mind, is functioning governments with smart regulation and efficient law enforcement. The original web showed that most people don’t want to run their own servers or be their own IT departments. Most people also don’t want to have to be their own bankers or lawyers; they don’t want to have to always beware of being scammed or taken for a ride. They want a society to do that for them.

Web3 can’t save a broken society. Anarchy doesn’t work. Without smart regulators, we’re headed for another round of the strong crushing the weak. Maybe it’s just different players this time.